Policy Recommendations in the Area of Innovation, Creativity and IP

MARCH 8, 2010

I was recently asked to put together a short document outlining my main policy recommendations in the area of “innovation, creativity and IP”. Below is what I prepared.

General IP Policy

Recommendation: IP policy, and more generally innovation policy, should aim at the improvement of the overall welfare of UK society and citizens and not just at promoting innovation and creativity

Innovation is, of course, a major factor in the improvement of societal welfare – but not the only factor, access to the fruits of that innovation is also important.

IP rights are monopolies and such monopolies when over-extended do harm rather than good. The provision of IP rights must balance the promotion of innovation and creativity with the need for adequate access to the results of those efforts both by consumers and those who would seek to innovate and create by building upon them. A policy which aims purely at maximizing innovation, via the use of IP rights, will almost certainly be detrimental to societal welfare, since it will ignore the negative consequences of extending IP on access to innovation and knowledge. As such, IP policy is about having “enough, but not too much”.

This basic point is often overlooked. To help minimize the risk of this occurring in future it is suggested that this basic purpose – of promoting the welfare of UK citizens – be explicitly embedded within the goals of organisations and departments tasked with handling policies related to innovation and IP.

Recommendation: Move away from a focus on intellectual property to look at innovation and information policy more widely

IP rights are but one tool for promoting innovation and often a rather limited one. The focus should be on the general problem – promoting societal welfare through innovation and access to innovation – not on one particular solution to that problem.

Provision and Pricing of Public Section Information


Public sector information (PSI) is information held by a public sector organisation, for example a government department or, more generally, any entity which is majority owned and/or controlled by government. Classic examples, of public sector information in most countries would include, among many others: geospatial data, meteorological information and official statistics.

While much of the data or information used in our society is supplied from outside the public sector, compared to other parts of the economy, the public sector plays an unusually prominent role. In many key areas, a public sector organization may be the only, or one among very few, sources of the particular information it provides (e.g. for geospatial and meteorological information). As such, the policies adopted regarding maintenance, access and re-use of PSI can have a very significant impact on the economy and society more widely.

Funding for public sector information can come from three basic sources: government, ‘updaters’ (those who update or register information) and ‘users’ (those who want to access and use it). Policy-makers control the funding model by setting charges to external groups (‘updaters’ or ‘users’) and committing to make up any shortfall (or receive any surplus) that results. Much of the debate focuses on whether ‘users’ should pay charges sufficient to cover most costs (average cost pricing) or whether they should be given marginal cost access – which equates to free when the information is digital. However, this should not lead us to neglect the third source of funding via charges for ‘updates’.

Policy-makers must also to concern themselves with the regulatory structure in which public sector information holders operate. The need to provide government funding can raise major commitment questions while the fact that many public sector information holders are the sole source of the information they supply raise serious competition and efficiency issues.

Recommendation: Make digital, non-personal, upstream PSI available at marginal cost (zero)

The case for pricing public sector information to users at marginal cost (equal to zero for digital data) is very strong for a number of complementary reasons. First, the distortionary costs of average rather than marginal cost pricing are likely to be high. Second, the case for hard budget constraints to ensure efficient provision and induce innovative product development is weak. As such, digital upstream public sector information is best funded out of a combination of ‘updater’ fees and direct government contributions with users permitted free and open access. Appropriately managed and regulated, this model offers major societal benefits from increased provision and access to information-based services while imposing a very limited funding burden upon government.

Recommendation: Regulation should be transparent, independent and empowered. For every public sector information holder there should be a single, clear, source of regulatory authority and responsibility, and this ‘regulator’ should be largely independent of government.

This is essential if any pricing-policy is to work well and is especially important for marginal-cost pricing where the Government may be providing direct funding to the information holder. Policy-makers around the world have had substantial experience in recent years with designing these kinds of regulatory systems and this is, therefore, not an issue that should be especially difficult to address.


The optimal term of copyright has been a very live policy issue over the last decade. Recently, in the European Union, and especially in the UK, there has been much debate over whether to extend the term of copyright in sound recordings from its current 50 years.

The basic trade-off inherent in copyright is a simple one. On the one hand, increasing copyright yields benefits by stimulating the creation of new works but, on the other hand, it reduces access to existing works (the welfare ‘deadweight’ loss). Choosing the optimal term, that is the length of protection, presents these two countervailing forces particularly starkly. By extending the term of protection, the owners of copyrights receive revenue for a little longer. Anticipating this, creators of work which were nearly, but not quite, profitable under the existing term will now produce work, and this work will generate welfare for society both now and in the future. At the same time, the increase in term applies to all works including existing ones – those created under the term of copyright before extension. Extending term on these works prolongs the copyright monopoly and therefore reduces welfare by hindering access to, and reuse of, these works.

Current copyright term is significantly over-extended. Calculations performed in the course of my own work indicate that optimal copyright term is likely around 15 years and almost certainly below 40 (the breadth of the estimates here are a direct reflection of the existing data limitations but this upper bound is still (far) below existing terms).

Even a simple present-value calculation would indicate that the incentives for creativity today offered by extra term 50 years or more in the future are negligible – while the effect on access to knowledge can be very substantial, especially when term extensions are applied retrospectively (as they almost always are).

It is also noteworthy that recent extensions, such as that for authorial copyright in the US (the CTEA) and the proposed extension of recording copyright in the EU, have been opposed well-nigh unanimously by academic economists and other IP scholars. Policy-making in this area should be evidence-based and designed to promote the broader welfare of society as a whole. Policies that appear to reflect nothing more than special-interest lobbying will only perpetuate the “marked lack of public legitimacy” which the Gowers report lamented, discouraging those who wish to contribute constructively to future Government policy-making in these areas, and making enforcement ever harder – effective enforcement, after all, depends on consent borne of respect as well as obedience coerced through punishment.